Business context and reporting period
Voya Financial, Inc. filed its annual report for the fiscal year ended December 31, 2015. It operates retirement, annuity, investment management, life insurance and employee benefits businesses, alongside closed blocks in run-off. The company served approximately 13 million customers and reported $452.4 billion of assets under management and administration (AUM/AUA) at year-end.
The filing presents full-year results and unaudited quarterly data. Fourth-quarter 2015 revenue was $2.0 billion; pretax loss was $243.3 million, net loss was $160.4 million and net loss available to common shareholders was $106.8 million, or $0.50 per diluted share.
Key financial metrics
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Total revenue | $11.34 billion | $11.09 billion |
| Income before income taxes | $584.5 million | $801.2 million |
| Net income available to common shareholders | $408.3 million | $2.30 billion |
| Operating earnings before taxes (non-GAAP) | $977.5 million | $1.23 billion |
| Net cash provided by operating activities | $3.25 billion | $3.63 billion |
| Total AUM/AUA | $452.4 billion | $523.8 billion |
| Total investments | $88.5 billion | $90.8 billion |
| Long-term debt | $3.49 billion | $3.52 billion |
| Consolidated cash and cash equivalents | $2.51 billion | $2.53 billion |
Operating earnings are a company-defined non-GAAP measure and exclude, among other items, CBVA results and specified investment, hedging and other adjustments. The filing does not provide a single comparable consolidated operating-margin measure. Insurance-subsidiary combined RBC was approximately 485%, down from 538% in 2014; all subsidiaries exceeded regulatory intervention thresholds. The ratio of earnings to fixed charges was 1.20x, versus 1.28x.
Material changes versus the prior comparable period
- Revenue increased 2.3%, while pretax income fell 27.0% and operating earnings declined 20.6%. Common-shareholder net income fell sharply from 2014, which included a $1.83 billion deferred-tax valuation-allowance release; 2015 recorded $45.9 million of income tax expense.
- Operating earnings for the ongoing businesses decreased to $1.21 billion from $1.38 billion. Management cited unfavorable DAC/VOBA assumption unlocking, lower alternative investment income, low-rate reinvestment pressure, lower retirement recordkeeping fees and higher Individual Life claims severity.
- AUM/AUA declined 13.6%. Retirement AUA fell substantially, in part reflecting assets transferred to reinsurers; Investment Management reported $4.6 billion of net outflows.
- Operating cash flow was $3.25 billion. Consolidated cash was broadly stable, but parent-company cash declined to $378.1 million from $682.1 million. The parent received $1.71 billion in subsidiary dividends and returns of capital and spent approximately $1.49 billion on share repurchases.
- Available-for-sale investment unrealized losses increased amid higher interest rates and wider credit spreads. AOCI fell to $1.42 billion from $3.10 billion. Other-than-temporary impairments recognized in earnings were $117.0 million, versus $31.6 million.
Outlook, management commentary, risks and unusual items
- Management expects continued pressure from low interest rates. It estimated that a flat-rate scenario—10-year Treasury yields near 1.8% through 2019—could reduce ongoing-segment pretax operating earnings by 2%–5% annually in 2016–2019 and lower the combined RBC ratio by about 50 percentage points by 2019 versus its expectations.
- New fixed-income investments made during 2016 were expected to earn an average 4.00%–4.25%, below the general account portfolio’s approximately 5.0% average yield. The company announced $350 million of strategic investment spending for 2015–2018; $79.5 million was incurred in 2015, with $110–$130 million anticipated in 2016.
- CBVA remains in run-off and is a material source of earnings and capital volatility. Its 2015 pretax loss was $173.3 million. Hedging prioritizes regulatory and rating-agency capital protection, not U.S. GAAP earnings, and may be ineffective or create earnings volatility. Policyholder behavior assumptions remain uncertain.
- In 2015, the company identified improper actuarial-model inputs affecting the fair value of certain CBVA embedded derivatives in prior periods. It revised historical figures, judged the errors immaterial to previously filed statements, and said regulatory and rating-agency capital and policyholders were unaffected. Audited financial statements received an unqualified opinion.
- Other notable items include $169.3 million of losses related to businesses exited through reinsurance or divestment, a $10.1 million debt-extinguishment loss, and a $86.0 million loss from the 2015 CBVA annual assumption review. Litigation and regulatory matters carried an estimated reasonably possible loss range of up to approximately $100 million above accrued amounts; the filing states that some matters cannot be estimated.
- Key risks include market and interest-rate movements, investment and counterparty credit risk, reserve and policyholder-behavior uncertainty, collateral and liquidity needs, captive-reinsurance regulation, ratings changes, and restrictions on dividends from insurance subsidiaries. Minnesota’s principal insurer had no ordinary dividend capacity at year-end without regulatory approval. The DOL’s proposed fiduciary rule and potential captive-reserve reforms were unresolved.
Important facts for investors to verify
- Reconcile the 2014 tax valuation-allowance release with recurring earnings and assess the quality and sensitivity of deferred tax assets.
- Review the sources of the AUM/AUA decline, Investment Management outflows, reinsurance transfers and their ongoing earnings effects.
- Test CBVA reserve assumptions, hedging effectiveness, collateral requirements and sensitivity to equity, volatility and interest-rate shocks.
- Confirm statutory capital, dividend capacity by insurer, and the availability and cost of captive-reinsurance financing under evolving regulations.
- Assess investment portfolio exposure to energy and other stressed credits, unrealized losses, impairment judgments and illiquid assets.
- Track reinsurance transaction costs and recoverability, the litigation estimate, and the timing and returns of the strategic investment program and share repurchases.